G20 Summit: Roundtable on Commodities and Raw Materials

Thank you Mr. Mestrallet for you kind words and thank you to all the CEOs for giving us the perspective of the private sector on this important topic.

Ladies and Gentlemen,

When looking at its policy achievements, it is fair to say the G20 fared well at least on two fronts:
- On the one hand, Governments successfully limited the impact of the crisis, thanks to a large, swift and coordinated stimulus package that was decided at the Washington and London Summits;
- On the other hand, world Leaders stood up against protectionist pressures. They committed and did refrain from raising trade and investment barriers. Indeed, according to WTO, UNCTAD and OECD analysis, less than 1% of G20 trade has been affected by import-restricting measures adopted since the eruption of the crisis.

I am pleased to see that avoiding trade and investment barriers is also the first of your B20 recommendations.

Needless to say, however, that the economic situation remains extremely tense, requiring enhanced vigilance to uphold an open trading system. This has been underscored by our latest monitoring report of trade and investment protectionist measures to the G20.

The area of your more direct concern -raw materials and commodities- is particularly sensitive.

As your report shows, the last few years have witnessed a sharp increase in prices for commodities such as minerals, metals and agricultural products. At the same time, export restrictions on raw materials have been used more frequently. Among industrial products, export restrictions on metals and mineral products have been broadly applied by many countries in response to the metals boom. These restrictions include export taxes, but also quantitative restrictions on exports of raw materials, including export quotas and various export licensing schemes.

This is a source of growing concern for policy-makers and business circles alike for very good reasons. In all the cases reviewed by the OECD, the effects on international markets of export restrictions have been found to be unambiguously negative, as they have restricted global supply and put upward pressure on world prices. It is also unambiguous that export restrictions penalise the domestic raw materials sector in favour of downstream industries.

But documenting the negative impact of export restrictions on raw material and food commodities is not enough. If we are to make a convincing case against such restrictions, we need: first, transparency; second, a thorough understanding of the policy rationales that are behind the implementation of such restrictions; and finally alternative policy options for exporting countries to consider.

OECD’s current project on a comprehensive inventory of export restrictions is part of this effort. This inventory is aimed at improving transparency and enabling more informed policy dialogue within and across countries. This covers 100 countries, identified as the top five producers for at least one of the 81 minerals and metals, including rare earths. The first stage of this work addresses raw materials and minerals, while subsequent work will cover agriculture commodities.

Preliminary data show the relative prevalence of export taxes over other forms of export restrictions, but also provide evidence of the diversity of measures actually applied. Non-ferrous minor metals and waste and scrap appear to be much more affected than others.

Our Organisation is also looking into the reasons that are inducing exporting countries into adopting export restrictions on raw materials. Recent work of the OECD shows that these restrictions have been justified on grounds such as:
- securing domestic supply and addressing the problem of resource depletion;
- increasing government revenue or decreasing domestic prices;
- promoting domestic downstream processing industries;
- conserving natural resources or promoting recycling.

These are certainly all very relevant policy rationales!

But at the same time, it is very well known that the supposed pursuit of legitimate regulatory objectives can easily cloak protectionist intent. Regulations can be used to undo or neutralize commitments undertaken in other policy domains, such as tariff reductions, removal of quantitative import or export restrictions, or opening up of the investment regime.

The OECD has therefore developed alternative policy options to export restrictions that would target the source of the policy concern more directly and constitute more effective and less costly alternatives to export restrictions:
- For example, in cases where improved environmental and safety performance of the mining sector is the objective, regulation and enforcement at the stage of production, and not at the border, is the best policy;
- Also, sustainable management of materials and waste, and improving resource productivity should be encouraged. The OECD has been working with countries and business to improve measurement of natural resource use and material consumption, to understand how materials flow through the economy, and how this affects the resource productivity of the economy and the quality of the environment.

You are certainly aware that about one fifth of the raw materials extracted world-wide end up as waste, and are potentially lost to the economy. There is undoubtedly room for progress here. As you say, innovation at every stage of a product’s life cycle should be promoted and could be conducive to reduce price pressures and ensure sustainability.

For example, we are currently carrying out a case study on critical metals contained in mobile phones (antimony, beryllium, palladium and platinum). The case study will shed light on the policies that can help to achieve better collection and recycling of mobile devices and encourage the recovery of the material that they contain. It will also discuss how policy interventions at other points along the life-cycle, e.g. through better design or material substitution, can help to reduce environmental and social externalities.

One of business priority highlighted in your recommendation is levelling the playing field, including through stable fiscal, environmental and social regulatory regimes. Here, we believe business has an important contribution to make, in particular in the sector of commodities and raw materials. This is why we, at the OECD, have elaborated Guidelines for Multinational Enterprises to help all companies make common and right choices on responsible business conduct in environment protection, labour rights, tax compliance and other areas relevant to investment and trade in these sectors. Both OECD and non-OECD governments also adopted the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas to provides practical recommendations for companies to source raw minerals in a responsible manner in such difficult environments.

But let’s be frank: the increasing resort to exports restrictions may also reflect a more fundamental trend towards growing global competition over essential materials.

Let’s be equally clear: this is a no-win game that will only exacerbate volatility in commodity prices and drive them further up.

Hence our support to a multilateral framework to discipline export restrictions -such a framework does not exist... yet-, because regulation was treated as the exclusive prerogative of individual governments. This approach is no longer tenable, if it ever was, and there is growing pressure for governments to find ways of accommodating one another with respect to a wide range of domestic regulatory policies.

At the end of the day, this is what the G20 is about: its “raison d’être” is to show leadership and equip the global economy with an efficient framework for policy coordination. And trade in raw materials and in food commodities should be no exception to this.

Having read your recommendations and listened to your reports, I understand that the business community does share our concerns in that respect and the OECD stands ready to work with you in facilitating dialogue between producers and consumers and in conveying this message to G20 governments.